Economists' Commentary: The Late Slowdown in Salt Lake
January 21, 2010
Ken Fears, Manager of Regional Economics 
The national housing slowdown arrived late in Salt Lake City and when it hit, the decline was shallower than the rest of the country. Home prices only began to decline in the third quarter of 2007 and fell 11.2% over the ensuing 8 quarters. More recently, the median home price fell 4.9% over the last 12 months, better than the national average decline of 11.5%. Salt Lake looks better over the longer-term too. Since the third quarter of 2002, the median priced home appreciated by $66,800.
Because it took longer for prices to rise in Salt Lake, affordability remained strong well into the later part of the national boom. Consequently, there was not as much demand for the risky ARM and interest-only loans that drove the subprime crisis. The share of subprime mortgages in this market is only 10.1%, well below the national average of 12.3%. Furthermore, since prices have been more stable in this market, it was easier for troubled home owners to refinance and fewer households ended up in foreclosure as a result when their rate reset. The current foreclosure rate on subprime loans is just 13.3% for October versus 18.0% for the rest of the country. However, the local subprime rate is on the rise having been 10.4% just a month earlier. Nationally, the foreclosure rate on subprime loans has declined slightly. Unfortunately, this trend might suggest either that the bulk of subprime loans were taken out late in the boom or that the slowing economy and layoffs are pushing these recent buyers over the edge.
Similarly, while the prime foreclosure rate for October in Salt Lake of 1.5% is well below the national average of 2.3%, it jumped 50% from just a month earlier. Historically, the Salt Lake area has had a higher than average foreclosure figure. As depicted in the graph below the foreclosure rate in Salt Lake was much higher than the national average during the last recession in 2001 and 2002, a period in which Salt Lake City's unemployment rate doubled. More recently, the unemployment rate has doubled from 3.1% to 6.2% over the 12 months ending in September with roughly 28,600 jobs lost. Because job losses and foreclosure are closely linked in Salt Lake City, the sliding economy could continue to press up on prime and subprime foreclosures in the Salt Lake area.
After the subprime crisis, the subprime market was replaced by FHA lending which should help stabilize the local market. The current median home price is only 30% of the local conforming loan limit of $729,750, meaning that a substantial portion of the market can use government-backed financing. This is an important change for the Salt Lake market. Also, since the rest of the country has already experienced many of the problems that are now developing in Salt Lake, the government has already begun programs to help home owners in jeopardy. Things may get worse here, but the system is primed to help.
One trend is on the upswing for Salt Lake: sales. Statewide sales were down 1.3% in the third quarter of 2009 compared to the same time a year earlier, which is an improvement from a year earlier when sales were down by 22.0%. Clearly the decline in sales has slowed as pictured in the graph above (blue bars). As sales volume improves, prices will stabilize, which will help with re-financing troubled mortgages and boost confidence in the local housing market. The result of this upward cycle is a return to a more stable, long-term market at a lower level.
Employment is the biggest issue facing the Salt Lake housing market. While subprime foreclosures are on the rise, this market has historically shown vulnerability to job losses boosting foreclosures. This market is not as exposed as others to risky lending and its late emergence into the housing recession will help it to take advantage of government work-out programs, limiting the upward pressure on inventories and price declines.
Every housing market is unique. NAR Research recently released its Local Market Reports for the third quarter of 2009. These reports cover 150 markets and highlight the current pricing and sales patterns as well as future demand and supply conditions. The Salt Lake City report as well as reports for many other markets can be viewed on NAR Research's website.
This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >
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